How to Buy Stocks or Bonds for Beginners

Buying stocks and bonds can be a great way to invest your money. With stocks, you are buying a piece of the company called a share, while with bonds you are loaning money to a company or a government. You make money with stocks when the company does well and pays you dividends and/or its share price increases. You make money in bonds when the company pays you interest on the money you loaned it and eventually returns your original investment amount. If you don't fully understand stocks and bonds, you can lose money by investing in them.

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Only invest money you can afford to lose in stocks or bonds. There is always a risk that you'll lose money in the investment, since a company whose shares or bond you've bought could fail.

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Research a company thoroughly and find out as much as possible about it before you buy its stock. The Securities and Exchange Commission (SEC) requires any company issuing stocks to provide a prospectus, a document that describes the company's financial details. Study it before buying stock. Keep in mind that buying stock in a new company is riskier than buying shares in an established one. You could lose your money if the new company fails, but you could also make a lot of money if the company succeeds.

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Consider buying bonds, since they are less risky than stocks. With bonds, you can check their credit rating before you buy them. The credit rating is like an individual's credit rating. You can learn a lot about a company by finding out if it has a top rating of AAA or the lowest rating, a D. When you buy a bond, unlike a stockholder, you will know how much you will make on the investment. Also, bondholders collect any money left in a failed company before stockholders do.

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Diversify your investments. This means buying a mixture of different types of stocks and bonds. If one of your investments does poorly, another investment that does well can compensate.

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Invest for the long term. If you are a young investor, time is on your side. Stocks fluctuate from day to day as well as over months and years. Investors who can hold their stocks for a long time usually come out ahead of those trying to buy and sell in the short term.

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Consider a person or business that helps you invest. Your state securities regulator can do a background check on investment advisers and financial planners before you seek their help with investing your money.